The Benefits of International Business and the Concept of Comparative
Advantage
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
The Benefits of International Business and the Concept of Comparative Advantage
Participation in international business allows countries to take advantage of
their comparative advantage.
The concept of comparative advantage means that a nation has an advantage over
other nations in terms of access to affordable land, resources, labor, and capital. In other
words, a country will export those products or services that utilize abundant factors of
production. Further, companies with sufficient capital may seek another country that is
abundant in land or labor, or companies may seek to invest internationally when their home
market becomes saturated.
Participation in international business allows countries to take advantage of specialized
expertise and abundant factors of production to deliver goods and services into the
international marketplace. This has the benefit of increasing the variety of goods and
services available in the marketplace.
International business also increases competition in domestic markets and introduces
new opportunities to foreign markets. Global competition encourages companies to
become more innovative and efficient in their use of resources.
For consumers, international business introduces them to a variety of goods and
services. For many, it enhances their standard of living and increases their exposure to new
ideas, devices, products, services, and technologies.
The Growth of International Business
The prevalence of international business has increased significantly during the last part
of the twentieth century, thanks to the liberalization of trade and investment and the
development of technology. Some of the significant elements that have advanced
international business include:
The formation of the World Trade Organization (WTO) in 1995
The inception of electronic funds transfers
The introduction of the euro to the European Union
Technological innovation that facilitates global communication and transportation
The dissolution of a number of communist markets, thus opening up many
economies to private business
Today, global competition affects nearly every company—regardless of size. Many
source suppliers from foreign countries and still more compete against products or services
that originate abroad. International business remains a broad concept that encompasses the
smallest companies that may only export or import with one other country, as well as the
largest global firms with integrated operations and strategic alliances around the globe.
The Challenges and Considerations of International Business
Because nation-states have unique government systems, laws and regulations, taxes,
duties, currencies, cultures, practices, etc. international business is decidedly more complex
that business that operates exclusively in domestic markets. The major task of international
business involves understanding the sheer size of the global marketplace. There are
currently more than 200 national markets in the world, presenting a seemingly endless
supply of international business opportunities. However, the diversity between nations
presents unique considerations and a plethora of hurdles, such as:
National wealth disparities: Wealth disparities among nations remain vast.
Regional diversity according to wealth and population: North America is home to
just 5 percent of the world’s population, yet it controls almost one-third of the world’s gross
domestic product.
Cultural/linguistic diversity: There are more than 10,000 linguistic/cultural groups in
the world.
Country size and population diversity: There were about 60 countries at the start of
the twentieth century; by 2000, this number grew to more than 200.
Some of the challenges considered by companies and professionals involved in
international business include:
Economic Environment
The economic environment may be very different from one country to the next. The
economy of countries may be industrialized (developed), emerging (newly industrializing),
or less developed (third world). Further, within each of these economies are a vast array of
variations, which have a major effect on everything from education and infrastructure to
technology and healthcare.
A nation’s economic structure as a free market, centrally planned market, or mixed
market also plays a distinct role in the ease at which international business efforts can take
place. For example, free market economies allow international business activities to take
place with little interference. On the opposite end of the spectrum, centrally planned
economies are government-controlled. Although most countries now function as free-
market economies, China—the world’s most populous country—remains a centrally planned
economy.
Political Environment
The political environment of international business refers to the relationship between
government and business, as well as the political risk of a nation. Therefore, companies
involved in international business must expect to deal with different types of governments,
such as multi-party democracies, one-party states, dictatorships, and constitutional
monarchies.
Some governments may view foreign businesses as positive, while other governments
may view them as exploitative. Because international companies rely on the goodwill of the
government, international business must take the political structure of the foreign
government into consideration.
International firms must also consider the degree of political risk in a foreign location; in
other words, the likelihood of major governmental changes taking place. Just a few of the
issues of unstable governments that international companies must consider include riots,
revolutions, war, and terrorism.
Cultural Environment
The cultural environment of a foreign nation remains a critical component of the
international business environment, yet it is one of the most difficult to understand. The
cultural environment of a foreign nation involves commonly shared beliefs and values,
formed by factors such as language, religion, geographic location, government, history, and
education.
